From: Jayne Zanglein [zanglein@TCNJ.EDU]
Sent: Monday, December 22, 2003 12:13 PM
To: rule-comments@sec.gov
Subject: File No. S7-19-03
Dear Mr. Katz:
I am writing in support of the Securities and Exchange Commission's
proposal S7-19-03 regarding security holder director nominations. The
proposal is a great step forward for institutional investors such as
pension funds who, as long-term investors, actively monitor the corporate
governance of the corporations in which they invest. As the SEC has noted,
under the present rules, long-term investors cannot successfully challenge
incumbent directors without waging an expensive proxy fight. This proposal
will make it easier for long-term owners to nominate corporate directors.
However, some hurdles remain in the form of high ownership thresholds and
the lengthy two-year process.
First, the proposed rules would allow a shareholder or shareholder group
that has beneficially owned more than 5% of the company for two years to
include nominees in the corporate proxy. This threshold is too high.
CalPERS, the largest pension fund in the country, rarely owns more than
0.5% of a single corporation's stock. Therefore, as presently drafted,
this proposal would not allow our nation's largest pension funds to
nominate directors. As patient long-term investors, these pension funds
are one of the primary watchdogs of corporate governance. I propose a 1%
threshold—the same threshold as is required under Rule 14a-8(b) for a
shareholder to file a shareholder proposal.
Second, the proposed rules would apply only to those companies at which
one of two possible triggering events has occurred. The first trigger is
the withholding of 35% of votes for a director nominee. The second
triggering event occurs when a shareholder proposal submitted by a 1%
shareholder or shareholder group receives support from more than 50% of
the votes cast on that proposal. These triggering events are unnecessary.
The ownership thresholds addressed earlier ensure that only long-term
investors with a substantial investment in the corporation will be in a
position to nominate directors.
In addition, the triggering event provision unnecessarily elongates the
procedure. In reality, two years must pass before the institutional
investor will be able to nominate and elect a director. In the first year,
the shareholder must either (1) encourage 35% of shareholders to withhold
votes for the targeted director or (2) must file a shareholder proposal
and obtain a 50% vote. If one of these triggering events occurs, then in
the following year, the shareholder may nominate a director for election.
Two years is too lengthy a process. I suggest that the entire triggering
event provision is superfluous and propose that it be deleted.
Thank you for the opportunity to comment on the proposed rule. This rule
represents an historic moment in the SEC’s history—one in which the SEC is
leveling the playing field for institutional investors who maintain a
long-term interest in the corporation. Please make sure that the final
rule does not set an unrealistically high threshold so as to defeat the
very goal of the SEC: to allow large investors to nominate directors.
Sincerely,
Jayne Elizabeth Zanglein
Assistant Professor of Law and Public Policy
School of Business
The College of New Jersey
2000 Pennington Ave
Ewing, N.J. 08628